Leverage is the key to all negotiations. No matter how great your benchmarking data may be or how skilled an orator you are, without negotiation leverage there is only so much you can achieve. Your best negotiation leverage with Workday, or any other cloud provider for that matter, will be on your first deal. Your first deal will also set the precedent going forward, which is why it matters so much. Let’s take a closer look at how this plays out.
Initial Subscription Fees
When you boil it all down and dispense with all the jargon and niceties, there are only three things cloud vendors care about:
- One, are we getting the deal?
- Two, when are we getting the deal?
- Three, what do we have to give up to get the deal?
The first one has to do with the vendor being selected, whether it is in a competitive bid environment, a sole source selection, or a renewal; where these latter two can also include a footprint expansion. The key here is whether the customer has viable alternatives for meeting their business requirements. Of course, a customer is not legally required to sign a new or renewal contract, but there may not be a viable alternative. Your cloud vendor will do everything in their power to gather information from various sources throughout your organization to make this determination, as it plays such a critical role in negotiation leverage.
Second, sales executives are driven by quarterly results and quotas, which naturally descend from their organization’s quarterly financial performance evaluation. So, the timing of securing a deal is an important factor for vendors and plays a significant role in the negotiation leverage, although not as critical as the first one above.
The third factor is centered around what pricing and commercial concessions the vendor needs to make to secure the deal and clear hurdles one and two above. Do not be confused. This is determined from the vendor’s perspective, not what you tell them they need to provide. This is where these three factors all come together, as the greater the fear, uncertainty, and doubt the vendor has with respect to the first two factors, the more negotiation leverage you have and the more likely the vendor’s assessment of the third factor will be closer to what you desire and have communicated to them.
Therefore, your initial Workday deal is where you will have the greatest negotiation leverage since you are not currently utilizing their solution and Workday is uncertain they will win your business. Understanding what a highly competitive deal looks like as well as how to develop and execute to a proven negotiation strategy and communication approach is where your negotiation will be won or lost. Failure in either of these will greatly increase your initial subscription fees and impact the rest of your commercial terms, including downstream fees.
Renewal Subscription Fees
This is similar to your starting salary at a new job. Future raises are typically calculated as a percentage of your current salary, taking into account inflation as well as past performance. More importantly, finance teams always view raises from a percentage increase perspective. Those who have done average work might get a 3% annual raise to cover inflation, and those who have significantly improved their productivity and skillset will receive an additional raise that falls within a pre-defined percentage range. So, your starting annual salary is a significant factor in determining your future salary.
The same is true for your annual cloud subscription fees. Cloud vendors have revenue numbers to meet and revenue growth is a significant factor in how the market views the vendor’s performance, which in turn has a direct impact on their stock price. Similar to salaries, vendor finance teams look at achieving a certain growth percentage on annual subscriptions from year to year. So, your initial subscription fees will play a significant role with respect to your future renewal subscription fees.
Additionally, on your initial Workday deal, your research on pricing benchmarks, your chosen negotiation strategy and communication approach, and your negotiation leverage will determine the competitiveness of any future renewal subscription fee protections you are able to achieve. These protections will come in the form of caps on subsequent renewal term increases. Therefore, your initial negotiated commercial deal will impact your renewal subscription fees from two different sides – it’s a double whammy.
Future Price Protections – New Solutions
Many customers have multiple phases as part of an initiative, with a host of reasons for the scope and sequencing of these phases. With Workday for example, it is common for customers to initially start with just the HCM solutions. Later on, they may choose to add Workday’s finance and analytics solutions. There are a couple of things to consider here.
First, any future price protections will be secured in your initial deal, thereby further supporting the importance of maximizing your Workday deal intelligence and leverage on your first contract negotiation. Second, the discount percentage you achieve on your first subscription sets a precedent that can significantly impact the discounted price protection you achieve for adding new solutions downstream. Once again, your initial negotiated deal impacts your future price protections from two different sides.
These three material pricing terms represent some of the high priority terms to negotiate with Workday. However, there are many other commercial terms to consider as part of any Workday negotiation. But do not lose sight of the importance your first negotiated deal will have on your entire Workday relationship. While it is possible to generate some negotiation leverage for renewals or for expanding your solution footprint, understand that a poor initial deal sets a precedent that is significantly much more difficult to overcome than if you had simply gotten your first deal right.